November 20, 2015

Patricia LaBorde, President of the National Association of Settlement Purchasers (NASP), opened her association's 2015 Annual Conference last week in Las Vegas with a provocative description of its prior 12 months: "a year of unimaginable successes and challenges".

Founded in 2004, NASP identifies itself as "a leader in setting standards and implementing best practices for the structured settlement purchasing industry. Our association safeguards the rights of settlement recipients to readily access their funds through an efficient, fair and transparent judicial process."

NASP Presidential Panel

Subsequent conference presentations detailed NASP's successes and challenges including an historic President's Panel, moderated by Robin Shapiro, and featuring LaBorde and Michael Goodman, the first sitting President of the National Structured Settlement Trade Association (NSSTA) to attend a NASP conference.

Goodman has identified "growth opportunities for the structured settlement industry" as his number one goal as NSSTA President. He also characterized his remarks and opinions as personal and not representative of official NSSTA policy or positions.

Goodman highlighted the need for "responsible factoring" and mentioned the consumer protections that have been put in place in Wisconsin, Maryland and Illinois. Based upon his own professional experience, Goodman gave multiple examples of what he considered appropriate and inappropriate transfer activities.

Among Goodman's other noteworthy comments:

"Factoring is not a zero sum game. What is bad for the secondary market is not necessarily good for the primary market."

"Both NSSTA and NASP need to improve/correct the branding of "structured settlements". Confusing the primary and secondary markets is not beneficial for either association."

"I am proud we have been able to create more consumer protections for injured annuitants. I am hopeful that by the end of this year, we will have improved the Structured Settlement Protections Acts (SSPAs) in five states.”

Both LaBorde and Goodman acknowledged business practices within their own markets that have created problems for the structured settlement brand. Some of the worst of the secondary market business practices were publicized nationally in an August 25, 2015 Washington Post front page article (featuring a non-NASP company) which more than one industry observer called "a perfect storm" for the factoring industry.

Legislative Collaboration

Even before the Washington Post article, however, and as a direct result of the 2013 Brenston case, which temporarily shut down the secondary market in Illinois, NASP and NSSTA initiated a proactive and collaborative legislative strategy to add five consumer protection amendments to targeted state structured settlement protection statutes:

No forum shopping.

Payee required to attend hearing.

Stricter application of approval requirements.

Advanced notice of transfer.

Required disclosure of prior transfers.

The first success of NSSTA and NASP's legislative collaboration resulted in amendments to the Illinois statute. The Brentson case propelled the two organizations to negotiate and work a compromise that improved the Illinois SSPA. From the perspective of LaBorde and NASP, the result in Illinois represented "the biggest victory since the Model Act".

To memorialize the success in Illinois, NASP honored Illinois State Representative Michael Zalewski as recipient of its 2015 Alexander Hamilton Award. Representative Zaleweski, who sponsored the new Illinois structured settlement legislation, praised its "clarity and protection" compared with the "ambiguity" of the prior law.

NASP has bestowed its Alexander Hamilton Award eight times "to distinguished individuals who have supported and defended the right to free alienability of property rights." NASP considers this right to be its own cornerstone and the foundation of the structured settlement factoring business.

Further highlighting the success of NSSTA and NASP's legislative collaboration, LaBorde and Goodman jointly announced that Governor Scott Walker had signed, just prior to their panel discussion, Wisconsin's first Structured Settlement Protection Act - thereby becoming the 49th state (all except New Hampshire) to have enacted such protective legislation.

During his Legislative and Regulatory Update, NASP lobbyist Jack Kelly, who serves as point person for the NSSTA / NASP collaborative state legislative strategy, provided additional details concerning both the political aftermath of the Washington Post article and the collaborative state legislative strategy.

Without dismissing the negative public relations impact of the Post article, Kelly does not see any immediate Congressional threat despite letters making headlines. "NASP's primary federal concern is the tax bill," Kelly stated, "and it's not on the calendar."

As for state legislation, "good planning has made the difference", according to Kelly. He spoke about "mutual respect" for NSSTA and identified Florida, Maryland and Virginia among priority states for joint future lobbying to improve consumer protection.

Nesbitt allocated significant time to In re: Rains, a Texas case in which the appellate court determined the trial court: 1) could not force MetLife into a contract with the transfer company, directly or indirectly, by imposing a servicing arrangement on account of the Texas statutory "no-split" provision; and 2) abused its discretion in approving the transfer citing a "severe discount rate" among other factors.

The Rains case featured an extensive "best interest" analysis establishing a new judicial precedent in Texas. This analysis requires a judge to consider a "penumbra" of information including "future yet foreseeable liabilities; domestic, economic, physical, medical and educational needs of payee and dependents." Also at issue: how much and what type of evidence is required to place into the court record to justify a transfer.

Matt Bracy reprised his role as moderator of NASP's popular Judicial Panel - this year featuring Judges Daniel Buckley (California); Laura Inveen (Washington); and Jeremy Warren (Texas). The two hour program included questions to and from the judges addressing such transfer topics as:

Interpreting the best interest standard;

Common mistakes at transfer hearings by attorneys, factoring companies and sellers;

How to best present a transfer;

How judges consider objections to transfers;

What documentation judges want to see at transfer hearings;

How to best protect the seller's privacy;

Information judges are not seeing presented that should be;

Significance of the origin (type of personal injury) to the judge's analysis;

Impact of prior transfers on assessments.

Two separate NASP presentations addressed unprecedented and changing perspectives of risk. Discussing Privacy Issues in Structured Settlement Transfers, Shawn Tuma spoke about risks due to cyber attacks. Citing the FBI, Tuma divided corporate America into two company types: those that have been hacked and those that will be - including many that have but don't realize it.

Health records, according to Tuma, are more valuable than financial records because they are rarely modified. Regardless of how you obtain health information, Tuma emphasized, you are obligated to protect it. These obligations include: stewardship, legal and public relations.

Tuma reported that both the SEC and the FTC have developed legal requirements that encompass prevention, detection, response, training, and third party access - and companies cannot insulate officers and directors from personal liability for related damages.

The lessons to be learned, according to Tuma: 1) document a record of compliance; 2) you will be breached; 3) Its not the breach, its your diligence, that matters most. Steven Fox supplemented Tuma's presentation with a discussion of ID Theft and Domicile Determination.

As secondary market transfers have expanded to include life contingent annuity components, mortality underwriting has become a critical skill set. Michael Fasano focused his presentation about Mortality Review / Process in Life Contingent Underwriting on unhedged life contingent secondary market structured settlement transactions.

Fasano emphasized that traditional medical underwriting practices utilized for life settlements or normal life insurance and/or annuities won't work for this class of individuals. Reasons include a high frequency of:

March 31, 2014

In addition to its other accomplishments (most notably publication of "Standards of Professional Conduct for Settlement Planners"), the Society of Settlement Planners (SSP) has distinguished itself by sponsoring educational programs addressing issues, featuring speakers and permitting perspectives the more defense-oriented National Structured Settlement Trade Association (NSSTA) traditionally has been reluctant or unwilling to offer.

SSP's 2014 Annual Conference, to be held April 27-29 in New Orleans, promises to continue this more open-minded educational tradition.

SSP's Secondary Market Panel, which will be moderated by Patrick Hindert (S2KM's Managing Director and blog author), should be educational and entertaining - and hopefully somewhat controversial. Here are some of the questions the featured panelists will address.

Overview

Is the secondary market good or bad for the primary structured settlement market?

Among other objectives, IRC 5891 and the Model State Structured Settlement Protection Act (Model Act) were enacted to protect claimants from predatory secondary market business practices. Both NSSTA and NASP supported these statutes. How successfully have these statutes accomplished their objective to protect structured settlement recipients?

Based upon your experience, what changes or amendments, if any, would improve the Model Act?

Would adding a multiple bid requirement as part of the "best interest" test improve the secondary market?

What have NASP, NSSTA and/or other primary market participants done to address these issues? What should they do?

Falsified Orders

Reports indicate a former paralegal at the New York law firm Paris & Chaikin falsified as many as 100 transfer orders?

What happened? What is the status?

How will these events impact the secondary market and its various participants including: the law firm, its secondary market clients, the annuity providers and the structured settlement recipient/transferors?

Anti-Assignment Restrictions

Recent (Brenston) and current class action (Sanders) cases in Illinois address the impact of "anti-assignment" restrictions on transfers of structured settlement payment rights.

What is the status of these cases and related litigation? What are the issues?

Does the recommended assignment language in NSSTA's Model Qualified Assignment and Release Agreement solve this problem - or is some other solution necessary?

What case-specific responsibilities do structured settlement brokers, settlement planners and other plaintiff advisers have related to anti-assignment restrictions?

Primary Market Responses

MetLife recently adopted controversial new business practices whereby it opposes transfers that involve split payments as well as court-approved servicing arrangements.

What is MetLife's rationale and objective?

How are these business practices impacting the secondary market?

The Florida state legislature is considering a bill that would add a maximum discount rate (similar to North Carolina) to its existing protection act..

Is this a good idea?

How has the North Carolina provision impacted the secondary market in that state?

Why haven't more annuity providers offered commutation-like alternatives to third party factoring transactions? What impact would such alternatives have on the existing primary and secondary markets?

RLS Arbitrations

RLS (formerly Rapid Settlements) has attempted to use the Federal Arbitration Act to side step state structured settlement protection statute requirements.

What is the status of the related RLS litigation?

Conclusion

What other secondary market issues do you see as important for the future of structured settlements?

What opportunities exist for primary and secondary structured settlement market cooperation? What is preventing this cooperation?

For background about these secondary market issues, see the structured settlement wiki and more specifically these prior S2KM blog posts:

December 29, 2013

While Berkshire Hathaway quietly assumed leadership among primary market structured settlement annuity providers during 2013, J.G. Wentworth (JGW) continued to consolidate its control of the secondary market with the same "subtlety" and ubiquitousness that have characterized its late-night television advertisements.

JGW's 2013 apogee occurred November 8 when JGWPT Holdings Inc.'sIPO produced what is currently the only publicly traded structured settlement company. The IPO was poorly received with JGWPT Inc. reducing the initial offering price of its common stock from $19-$22 per share to $14.00 which then traded down to the high $12s.

The stated purposes for JGWPT's IPO were to pay down some of JGW's $572 million debt and to provide its pre-IPO equity holders (JLL Partners) an opportunity to earn additional profits. Post-IPO, JLL Partners continues to hold a 39% economic interest and a 63% voting interest in JGWPT while four of its partners sit on the company's Board of Directors.

JGWPT's common stock, however, now trades on the New York Stock Exchange (symbol: JGW) and closed Friday (December 27, 2013) at $17.10 per share. At least one analyst has informed S2KM he believes the stock is currently worth at least $20 per share based upon JGW's "dominant franchise", access to securitization markets, low costs relative to competitors and "incalculable returns on capital", among other factors.

Problems and Controversies in 2013

As S2KM reported in this prior blog post, JGW, which was founded in 1995, had experienced a tumultuous history prior to 2013 - and problems and controversies continued to plague the company during 2013:

Abandoned Sale - Bloomberg News reported in January 2013 that JLL Partners had abandoned plans to sell the company after bids failed to meet expectations. Earlier reports had indicated that JLL Partners was seeking a $1 billion purchase price for JGW from private-equity firms.

Ratings Downgrade - Moody's Investors Service (Moody's) announced in February 2013 a downgrade of its Corporate Family Rating (CFR) for JGW from B3 to Caa1. Under Moody's credit rating scale, "Caa1" signifies a long-term rating "rated as poor quality and very high credit risk." Moody's CFR ratings for JGW are separate and distinct from financial agency ratings applicable to JGW structured settlement securitizations which historically have been rated as high quality and low risk investments.

Shareholder Distribution - Moody's announcement confirmed "JGW is undergoing a leveraged recapitalization that will result in a tripling of the company's corporate debt as it pays its shareholders a very substantial dividend....Net proceeds from the $425 million Senior Secured Term Loan issuance will be used to finance a $309 million capital distribution to JGW's shareholders as well as to repay an existing $142 million term loan."

Falsified Court Orders - JGWPT's amended S-1 statement, filed October 28, 2013 in anticipation of its public offering, included the following statement under a section titled "RISKS RELATED TO OUR BUSINESS OPERATIONS: ... there have in the past and may be in the future deficiencies in court orders obtained on our behalf by third parties that result in those court orders being invalid, including as a result of failures to perform according to our requirements and acts of fraud,..." That statement apparently references as many as 100 falsified court orders in New York approving JGW structured settlement transfers.

Brenston Case - The Illinois Supreme Court denied Peachtree Settlement Funding's petition for appeal of the 4th District Illinois Court of Appeals' decision in the Settlement Funding v. Cathy Brenston case. The earlier Court of Appeals decision held the Illinois state court, which had previously approved transfers requested by Brenston 1) had a duty to enforce anti-assignment provisions in Brenston's original structured settlement documentation; and 2) had no authority under the Illinois protection act to approve the transfer petitions - even though all of the relevant parties had waived the anti-assignment provisions. In an Amicus curiae brief, the National Association of Settlement Purchasers (NASP) asserted the Appellate Court decision will render the Illinois transfer statute "a practical nullity"

NASP Conference - In addition to Shapiro's comments, NASP's 2013 annual conference focused on controversial issues which have historically divided the primary and secondary structured settlement markets. In her keynote remarks, NASP President Patricia LaBorde encouraged diverse perspectives and re-inforced NASP's policy of politically unobstructed learning. "We want to hear from all structured settlement stakeholders - even if they disagree with us or don't like who we are," LaBorde stated. "We are here to listen. We are here to improve."

METLife Split Payment Policy - During his NASP presentation, Executive Director Earl Nesbitt reported a controversial new business practice that is troubling JGW and other transfer companies. MetLife apparently is now actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers typically remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.

Former Executives' Lawsuit - Another 2013 JGW nadir occurred in October when two former JGW executives and directors filed a Complaint in the Court of Chancery of the State of Delaware against current JGW CEO David Miller, three current JGW Directors and multiple JGW affiliate companies seeking to enforce a Tax Receivables Agreement (TRA) under which they claim they are owed approximately $35 million. A copy of the Complaint, which is posted on the structured settlement wiki, highlights JGW's complex organizational history as well as a shareholder focus disconnected from the welfare of its customers.

SEC Addresses Structured Settlement Transfers

Responding in part to concerns about secondary market business practices, the Securities and Exchange Commission (SEC) Office of Investor Education and Advocacy issued an Investor Bulletin in 2013 titled "Pension or Settlement Income Streams: What You Need to Know Before Buying or Selling Them".

The Investor Bulletin highlights questions potential sellers and investors should ask before proceeding with proposed structured settlement transfers and includes a number of additional warnings and resource links.

A responding article , written by two industry leaders, characterized the SEC Bulletin as "misleading and in some cases inaccurate concerning the sale of structured settlement payment streams and factored structured settlements as an investment vehicle." The authors assert the SEC Investor Bulletin should have clarified the following features of structured settlement factoring transactions:

"Always court ordered"

"No negative tax consequences to the seller"

"Investors' rights"

Secondary Market Growth

Despite problems and controversies, the U.S. structured settlement secondary market appears to have experienced additional growth during 2013. Based upon various industry sources, and subject to future revisions based upon subsequent information, S2KM estimates the 2013 structured settlement secondary market has increased approximately 7% compared with 2012 resulting from approximately 12,800 transfers and $385 million PV of secondary market purchases.

Approximately 149,000 structured settlement transfers have occurred since 1986;

Involving approximately 74,000 recipients - many of whom have made multiple transfers;

With approximately $4.4 billion PV in aggregate sums paid to those recipients.

For an average of approximately $30,000 per transfer.

For comparison, S2KM estimates the primary market has sold approximately $139 billion PV of structured settlement annuities to approximately 800,000 recipients since 1975 with an average premium of approximately $174,000.

For additional S2KM reporting about the secondary market, see the structured settlement wiki. For additional S2KM 2013 annual reports, see:

December 02, 2013

November was an "interesting" month for JGWPT Holdings Inc. (JGWPT), the leading purchaser of structured settlement payment rights, which markets under the names of J.G. Wentworth (JGW) and Peachtree Settlement Funding (Peachtree).

Also during November, at the most recent National Association of Settlement Purchasers (NASP) Annual Conference:

Former NASP President Robin Shapiro expressed his personal outrage about "troubling reports concerning the structured settlement factoring business." At least some of Shapiro's criticism appeared to be directed toward some JGWPT business practices.

NASP Executive Director Earl Nesbitt reported a controversial new business practice that is troubling JGWPT and other transfer companies. MetLife apparently is now actively opposing transfers that involve split payments as well as court-approved servicing arrangements. Under such servicing arrangements, structured settlement annuity providers typically remit the entirety of specific periodic payments to transfer companies to administer even when the original recipient/transferor only assigns a portion of the payments.

As S2KM previously reported, JGW, which was founded in 1995, had already experienced a tumultuous recent history prior to November:

On June 1, 2009, JGW and two affiliated companies entered Chapter 11 bankruptcy protection after the company "encountered liquidity problems amid a tightening credit market".

Also in 2011, JGW merged with Peachtree in a stock swap, with JLL Partners retaining control of the merged companies which have each continued to participate in the secondary market.

On January 30, 2013, Moody's Investors Service announced a downgrade of its Corporate Family Rating (CFR) for JGW from B3 to Caa1. Moody's also issued the same downgrade for JGW's $425 million senior secured term loan and $20 million senior revolving credit facility issued by Orchard Acquisition Company, a subsidiary of JGW.

Estimates of secondary market experts interviewed by S2KM in late 2012 of the post-merger 2012 market share of the JGW and Peachtree varied from a low of 50% to a high of 75%. These experts also believed JGW/Peachtree's share of the estimated 2012 U.S. secondary structured settlement market profits of $120 million was $100 million, or 83%.

JGWPT Holdings Inc.'s Amended Form S-1 Registration Statement, filed October 28, 2013 prior to its November 8, 2013 public offering of common stock, provides more recent financial and marketing information about JGW's holding company. Selected data:

Generated cash from the net financing activities of its warehouse financing and permanent securitization financing facilities totalling $314.8 and $131.3 million, not counting $29.9 million generated from its most recent July 2013 securitization.

Used cash of $225.7 million and $163.3 million in its operating activities.

During 2013 prior to it IPO, JGWPT distributed $459.6 million to its "common interest holders" resulting in members' capital of $38.4 million and negative tangible equity of ($96.2 million) as of June 30, 2013.

Since 1995, JGWPT has

Spent approximately $585 million in marketing through multiple media outlets including $216 million during the past three years.

Purchased more than $9.1 billion of structured settlement payments. Its average customer has completed two separate transactions.

During an average four week period, JGWPT generates more than 510 million advertising impressions which result in 80% of its target audience viewing its advertisements five or more times during that four week period.

Kantar Media estimates that JGW and Peachtree have each spent approximately five-times more than their nearest competitor on television advertising since 2008 and together have spent over 80% of the total amount spent by all participants in the U.S. secondary structured settlement market.

JGWPT's customer databases included more than 121,000 current or prospective structured settlement recipients as of July 31, 2013 entitled to approximately $31 billion of unpurchased structured settlement payments.

JGWPT's nationwide attorney network covers over 3,000 counties. Approximately 95% of the proposed structured settlement purchases JGW and Peachtree present to a judge have been approved.

The stated purposes for JGWPT's IPO were to pay down some of its $572 million debt and to provide its pre-IPO equity holders (JLL Partners) an opportunity to earn additional profits. Post-IPO, JLL Partners continues to hold a 39% economic interest and a 63% voting interest in JGWPT while four of its partners sit on the company's Board of Directors.

JGWPT originally anticipated raising $300 million by selling 12.2 million Class A shares at a price between $19 and $22 each. When demand didn't materialize, the IPO opened at $13 per share and fewer shares were offered.

JGWPT's stock trades on the New York Stock Exchange (symbol: JGW) and closed today (December 2, 2013) at $16.45 per share. At least one financial analyst with whom S2KM has spoken believes JGWPT's stock remains substantially undervalued and is worth at least $20 per share.

For additional S2KM reporting about J.G. Wentworth and the structured settlement secondary market, see the structured settlement wiki.

The initial answer is likely "almosteverywhere" within both the primary and secondary structured settlement markets - recognizing, of course, that this story has just recently been made public most significantly in JGWPT Holdings Inc.'s Amended S-1 Statement, filed October 28, 2013 prior to its November 8, 2013 public offering of common stock.

Until the facts of this apparent fraud become public (possibly through subsequent lawsuits), many key questions remain unanswered for most industry participants. Among those questions:

Who was responsible?

Why did they falsify the orders?

How many cases are involved?

Among collateral case participants, who knew, or should have known, what and when?

What will be the consequences?

Will the Internal Revenue Service impose IRC 5891 excise taxes?

Although outrage may seem justifiable as an appropriate industry response:

Who should be the target of the outrage?

What possible and realistic solutions exist?

Robin Shapiro's NASP Presentation

S2KM first learned about the falsified transfer orders at last week's NASP conference . During a luncheon presentation, former NASP President Robin Shapiro expressed his personal outrage about "troubling reports concerning the structured settlement factoring business." In addition to falsified transfer orders, Shapiro also highlighted and criticized other secondary market business practices:

Inter-state Forum Shopping - "It has been reported that some factoring companies aresigning up out-of state sellers to do deals in jurisdictions where judicial scrutiny is known to be limited -- listing what turns out to be a PO Box as their residence address."

Short-cutting Waiting Periods and Disclosure Requirements - Some factoring companies require sellers to "sign contracts and backdate [Shapiro's emphasis] disclosures so as to make it appear, at least in a paper file, that the seller was afforded the statutory 10 day wait between disclosure and signing."

Expediting Hearing Dates Before Preferred Judges - "Counsel for originators file multiple 'John Doe' court petitions as place-holders in a busy court, amending later with specific names and amounts, to secure an expedited hearing date and perhaps a hearing before a preferred judge."

"Competing Bids" from the Same Company - Consumers "get what appear to be 'competing bids' from two brands that are really one and the same company. The consumer thinks they've shopped around. Later, when the consumer discovers the truth, they feel tricked. And they complain - online and elsewhere."

"Perhaps most disturbing", Shapiro stated, is the public disclosure in JGWPT Holdings Inc.'s Amended S-1 Statement. "Think about that", Shapiro stated. "There may have been and may be "an unknown number of court orders that are "INVALID."' (Shapiro's emphasis).

Settlement Funding v. Cathy Brenston

Shapiro did not address Settlement Funding v. Cathy Brenston during his NASP presentation. NASP Executive Director Earl Nesbitt, however, provided conference attendees with a detailed report about this high profile and controversial case during his NASP conference case law update. Currently subject to a petition for review by the Illinois Supreme Court, this case (which also involves a J.G. Wentworth affiliate) concerns "invalid transfers" but not "falsified transfers"

In the Brenston case, a 5th District panel, sitting for the 4th District Illinois Court of Appeals, previously held that because Brenston’s settlement agreement contained an enforceable anti-assignment provision, the transfer court had a duty to enforce that provision and “it had no authority under the Act to approve” the transfer petitions. If upheld, the Brenston decision could prove more damaging to the structured settlement industry than the New York falsified transfers.

Shapiro's Proposed Solution

"If not addressed," Shapiro stated, "this kind of stuff is going to provoke a regulator and investor reaction that none of us is going to like. The answer is not simply making speeches here or making 'representations' that the rules are being followed. We're past that."

At his own factoring company, Shapiro has retained independent third party due diligence firms to sample and audit its receivable files and to provide independent third party verification of its compliance - "going forward AND back."

"As independent reviewers," Shapiro stated, "these auditors will be able to look where they want and test whatever they want. We don't have anything to hide. But we intend to let them know where to look and what to look for to expose corner-cutting."

Business Practices and Models

Bad business practices can destroy the structured settlement industry - whether they occur in the primary or secondary market.

Although outrage may seem appropriate, solutions are needed.

As industry leaders inevitably renew their advocacy for improved business practices and business models, they might benefit by reading (or re-reading) "Getting to Yes" which at one time represented a guidebook of sorts for the primary structured settlement market.

Perhaps the "Getting to Yes" method can be useful to help a divided structured settlement industry address problems that impact all industry stakeholders:

Separate the people from the problem.

Focus on interests not positions.

Invent options for mutual gain.

Insist on using objective criteria.

For additional information about secondary market business practices, see section 16.02[2] of "Structured Settlements and Periodic Payment Judgments" (S2P2J) and the structured settlement wiki.

November 11, 2013

Primary market representatives attending their first National Association of Settlement Purchasers
(NASP) Annual Conference are typically surprised - both by the
exceptional quality of the educational experience and NASP's
encouragement of diverse perspectives on controversial issues which have
historically divided the primary and secondary structured settlement
markets.

NASP President Patricia LaBorde's keynote remarks at NASP's 2013 Annual Conference last week in Las Vegas re-inforced NASP's policy of politically unobstructed learning. "We want to hear from all structured settlement stakeholders - even if they disagree with us or don't like who we are," LaBorde stated. "We are here to listen. We are here to improve."

Consistent with these educational objectives, previous NASP speakers
have included critics from the primary market such as John Darer and
Jack Meligan as well as attorneys who represent annuity providers in
transfer hearings such as Stephen Harris and Peter Vodola. Regular NASP
educational program features also include both a Primary Market Panel
and a Judicial Panel.

In addition to other speakers who
highlighted and criticized specific secondary market business practices
during this year's NASP conference, former NASP President Robin Shapiro
provided the most comprehensive and unanticipated assessment. Shapiro's
unannounced critique, which preceded, but was unrelated to, his
introduction of NASP's 2013 Hamilton Award recipient Jack Kelly, will be summarized and discussed in subsequent S2KM blog posts.

NASP 2013 Speakers and Topics

Jack Kelly - State and Federal Legislative and Regulatory Developments.

Sponsors
- NASP conferences invariably attract more sponsors than any other
conferences S2KM attends. NASP sponsors this year included Google and
NBC.

Legislation and Regulation - Secondary
market legislative and regulatory developments have decreased
considerably during the past couple of years. 48 states have now enacted
protection acts with Oregon amending its statute during 2013.

Case Law - Several cases decided in 2013 have the potential to significantly impact secondary market business standards and practices. "Structured Settlements and Periodic Payment Judgments" (S2P2J) will report on the following cases discussed during the NASP conference in upcoming Release 55:

Settlement Funding v. Cathy Brenston

Symetra v. Rapid Settlements

Hartford Life v. Estate of Solomon

In re: Porter

J.G. Wentworth Originations v. Mobley

Brenston Case
- S2KM will discuss the Brenston case, which is currently subject to a
petition for review by the Illinois Supreme Court, in subsequent blog
posts. A 5th District panel, sitting for the 4th District Illinois Court
of Appeals, previously held that because Brenston’s settlement
agreement contained an enforceable anti-assignment provision, the
transfer court had a duty to enforce that provision and “it had no authority under the Act to approve” the transfer petitions.

Special Needs Attorneys
- Rajiv Goel, addressing capacity issues, was the first special needs
attorney to speak at a NASP conference. At prior special needs
conferences S2KM has attended, attorneys frequently criticize primary
market consultants for "over structuring" and for opposing
single claimant qualified settlement funds. In addition, several state
Medicaid agencies are attempting to disqualify structured settlement
funded special needs trusts because of the potential liquidity
(resources) available via the secondary market. Primary and
secondary structured settlement market participants appear to have
shared interests in improving their special needs public relations and
lobbying strategy.

Although
a final Schedule 1.15 has not yet been published, benefit reductions
for ELNY structured settlement recipients may be 3-4% greater than
originally predicted.

Guarantee Association Benefit Company
(GABC), ELNY's D.C.- based successor insurer under NOLHGA's control, has
not yet disclosed any information about the expenses association with
ELNY's liquidation or the investment performance of ELNY's assets during
and/or following ELNY's liquidation.

Despite shortfalls
experienced by more than 1400 ELNY structured settlement recipients,
none of the participating state Guarantee Associations paid out their
full coverage amounts.

GABC is flagging factoring transactions which are not receiving supplemental benefits.

The ELNY class action lawsuit remains on hold while the appeal of Judge Galasso's contempt order is pending.

Judicial Panel
- NASP's Judicial Panel provided opportunities for both the judges and
conference attendees to ask each other questions and to communicate
problems they have experienced during transfer proceedings. Speaking for
the panelists, Judge Bise, who attended the entire conference, stated "I have learned a lot. We would appreciate NASP continuing to educate us on transfer issues."

Primary Market Panel
- Panelist William Schemmel, legal counsel for the Western &
Southern Financial Group, which owns Integrity Life among other
affiliates, was one of two representatives of former primary market
annuity providers attending the NASP conference. Similar to the judicial
panel, Schemmel's discussion of transfer issues and problems was
practical and productive without the political invective which
frequently and unfortunately characterizes transfer discussions at
primary market conferences.

METLife's New Transfer Policies
- Despite IRC 5891 and state protections acts, structured settlement
annuity providers retain the ability to prevent payment right transfers
by enforcing anti-assignment clauses in applicable settlement documents.
Generally, however, for the cost of an administrative fee, structured
settlement annuity providers have cooperated with factoring companies
and payee/transferors since 2002 to enable court-approved transfers.
During his case law update, NASP Executive Director Earl Nesbitt
reported METLife has now reversed course and has begun challenging this
cooperative spirit with new transfer policies prohibiting two previously
existing industry standards: 1) transfers of partial payments; and 2)
factoring companies assuming administrative responsibility for
post-transfer payments.

November 13, 2011

Highlighting a year during which the secondary structured settlement market is exceeding previous annual transfer totals, the National Association of SettlementPurchasers (NASP) cautiously celebrated its seventh Annual Meeting November 9-11, 2011 in Las Vegas with record conference attendance including member company representatives, affiliate attorneys and invited guests.

Recognizing its legislative successes, NASP honored its Executive Director Earl Nesbitt for his past lobbying efforts by awarding him with NASP's 2011 Alexander Hamilton Award. Nesbitt represented NASP in helping to enact Internal Revenue Code section 5891 and the Model State Structured Settlement Protection Act upon which are based most of the related state structured settlement protection statutes.

NASP President Matthew Bracy additionally praised NASP's founders stating: "Through their vision, guts and determination, we have not only persevered but flourished. Today NASP celebrates the fact that structured settlement recipients, in compliance with federal and state laws, have the right to sell their asset when needed."

NASP Educational Program

Maintaining its tradition of inviting judges representing different states to speak, NASP's 2011 educational program featured a panel discussion of judges from New York (Honorable JudithMcMahon), Texas (Honorable Alexandra Smoots-Hogan) and Mississippi (Honorable Denise Owens) moderated by Patricia LaBorde. Among other issues, the judges discussed how they interpret the "best interest" standard as well as their expectations for transfer company counsel, transfer documentation, disclosure of prior transfers and levels of proof in transfer cases.

Another highlight of NASP's 2011 educational program was NASP's decision to organize smaller breakout group discussions consisting primarily of NASP member general counsel and affiliate NASP member attorneys to discuss:

Symetra v. Rapid - This ongoing litigation appears likely to be completed in 2011 with injunctions prohibiting Rapid Settlement's prior business practices of using arbitration to by-pass state structured settlement protection statutes and taking security interests to gain rights of first refusal for future transfers.

Conflicts between "incumbents" and "insurgents" in the secondary structured settlement market with a substantial portion of new transfers including individual investors not just institutional investors.

Confusion between transfers of structured settlement payment rights and "settlement liquidity" businesses involving other asset classes such as the increasing sale of veterans' benefits.

At least one (unnamed) annuity provider that refuses to release guaranteed payments to investors when a payee dies resulting in delays and legal costs for transfer companies.

Dodd-Frank - Bernstein's Dodd-Frank update focused on the Consumer Financial Protection Bureau (CFPB), a new federal agency . CFPB's central mission is "to make markets for consumer financial products and services work for Americans ....." Among its core functions are to take consumer complaints and to restrict unfair, deceptive or abusive acts or practices under the Federal consumer financial laws. Dodd-Frank provides CFPB with authorities that go beyond the existing consumer protection statutes. CFPB has broad authority to ask questions and demand information including consumer complaints. Dodd-Frank also establishes the Federal Insurance Office (FIO) with the authority to monitor all aspects of the insurance industry.

Advertising - Bernstein's advertising discussion referenced sections of the Better Business Bureau's Code of Advertising that could impact structured settlement purchasing transactions (or primary market transactions) by prohibiting advertisements which are untrue, misleading, deceptive, fraudulent, falsely disparaging of competitiors, or insincere offers including deception through omission. As one strategy to protect against false advertising, Bernstein recommended using disclaimers whose effectiveness depends upon their prominence and location.

Elizabeth Yingling - Yingling, a securities attorney, discussed how federal and state securities laws can impact structured settlements. In defining what constitutes a "security", Yingling focused on the meaning of an "investment contract" as that term was defined in SEC v. Howey, a 1946 U.S. Supreme Court decision. Yingling offered several practical tips for transfer companies to avoid the mine fields of the securities laws when marketing to individual investors and also emphasized the serious risks involved when dealing with unsophisticated investors.

Earl Nesbitt - Nesbitt discussed the concepts of "discount rate" and "discounted present value" both of which play an important role in court hearings to evaluate structured settlement transfer proposals. The Model State Structured Settlement Protection Act defines "discounted present value" to mean: "the present value of future payments determined by discounting such payments to the present using the most recently published Applicable Federal Rate for determining the present value of an annuity, as issued by the United States Internal Revenue Service." In addition to identifying many factors that can determine the discount rate for a specific case, Nesbitt summarized the results of a recent survey he conducted of the discount rates approved by judges in Harris County Texas. Results:

The average discount rate: 15.8 percent;

The weighted average (i.e. taking into consideration the relative case size): 12.96 percent;

The lowest discount rate: 7.4 percent; and

The highest discount rate ($3494 paid for $7282 due in less than one year): 61.3 percent.

Patrick Hindert - Hindert (author of S2KM's blog "Beyond Structured Settlements") provided a "Primary Market Report" addressing current industry challenges and issues. In addition to explaining why primary market annuity premium could fall below $5 billion for 2011, Hindert summarized the historical background and current status of Executive Life of New York (ELNY). The impact of the secondary structured settlement market on the ELNY liquidation has been underestimated in most ELNY reporting by primary market sources. According to reliable secondary market sources, however, payment rights from as many as 1000 of ELNY's remaining structured settlements are currently owned by secondary market companies and/or investors.

Joe Feltes - Feltes, an attorney whose clients include health care providers and whose legal expertise includes social media, e-mail and Internet use, spoke about privacy issues in structured settlement transactions. Based upon his research, Feltes expressed surprised at the paucity of information available about structured settlements and privacy issues. As one example, Feltes pointed out the Model State Structured Settlement Protection Act does not address privacy. Before seeking and transmitting private medical information about structured settlement candidates and/or recipients, Feltes recommended obtaining purpose-specific written authorization including a waiver and release. In addition to HIPAA, Feltes discussed the privacy provisions contain in Graham Leach Bliley.

Congratulations to NASP for continuing its high educational standards with an outstanding 2011 Annual Meeting. Conference Chairperson Patricia LaBorde prepared helpful and related handout summaries for several of the presentations.

Featuring industry leaders, commentators and professional association conferences, S2KM has attempted to highlight how legal and technology changes are redefining the traditional (pre-2001) structured settlement market including structured settlement public policy as well as structured settlement business standards, business practices and business models.

From S2KM's perspective, the following categories, people and developments defined the structured settlement and special needs settlement planning industries in 2010:

As a general observation, all of these conferences were valuable and complementary. For S2KM's 2010 (plus historical) conference reports, see S2KM's structured settlement wiki.

SSP, NASP and NAMSAP deserve special recognition for their 2010 strategic educational discussions featuring industry leaders, commentators and critics who offered alternative perspectives for improving and growing the structured settlement and special needs settlement planning markets.

By comparison, NSSTA remains reluctant to openly discuss strategic industry issues or to include alternative perspectives in their educational programs. More positively, NSSTA representatives and members increasingly attend and speak at non-NSSTA structured settlement and special needs settlement planning conferences.

NAELA's educational conferences are noteworthy because they regularly feature sections or entire programs titled "unprograms". NAELA's unprograms are moderated group discussions about specific topics. NAELA's 2010 Special Needs Summit included six separate one hour unprograms with a concluding unprogram wrap-up session. One example of a 2010 NAELA unprogram was titled "Collaboration Opportunities for Special Needs Attorneys and Financial Planners".

Industry leaders

NSSTA promoted Eric Vaughn, who previously served as NSSTA's lobbyist, to replace Joseph Ricci as NSSTA's new Executive Director effective July 1, 2010. Peter Arnold, previously NSSTA's Marketing Director, was similarly promoted to serve as NSSTA's Associate Executive Director. NSSTA's Board of Directors elected Michael Kelly as its 2010 President and Dan Finn as its President-elect. NSSTA honored Congressman Peter Stark during its Annual Meeting as its 2010 Legislator of the Year. NSSTA also gave special recognition to Karen Meyers and Joseph Bornstein for their contributions to NSSTA's CSSC and NSSTAPAC programs respectively..

SSP elected Jason Lazarus as its President for 2010-11 and Charles Schell as Vice President. SSP honored Richard Risk with the designation of "life member" for his contributions to SSP and the settlement planning industry. Joseph Tombs continues as Director of SSP's RSP certification program.

NASP named Matthew Bracy as its new President succeeding Robin Shapiro. Earl Nesbitt continues as NASP's Executive Director.

NAMSAP elected Michael Westcott as its President.

NAELA honored Dick Traum as the first recipient of NAELA's Special Needs Leadership Award. Traum is the founder and CEO of Achilles International, a non-profit organization providing community support for athletes with disabilities with members in more than 70 countries.

Amy Palmiero-Winters, ultra-marathoner and lower-leg amputee, was named during 2010 as the winner of the 2009 James E. Sullivan Award given annually to the top amateur athlete in the United States.

Industry commentators

For the past several years, Robert Wood has been the preeminent tax commentator and author for the structured settlement and settlement planning industries. Wood's publications appear on the Wood & Porter website.

During 2010, Jeremy Babener emerged as an important new structured settlement tax commentator and author specializing in public policy and proposing an expanded structured settlement tax subsidy. In addition to authoring several structured settlement articles for tax and legal journals, Babener participated as a featured speaker at both the SSP and NASP 2010 Annual Meetings and authored two blog posts for S2KM during 2010. Babener discussed his structured settlement writing (accessible on S2KM's structured settlement public policy wiki and Babener's Tax Structuring website) in this 2010 S2KM interview.

An increasing number of structured settlement and special needs settlement planning professionals published blogs during 2010 joining industry blogging pioneers such as John Darer, Mark Wahlstrom, Matthew Bracy and Jack Meligan.

Incisive Media published two new updates (Release 47 and Release 48) for "Structured Settlements and Periodic Payment Judgments" during 2010.

Dodd-Frank re-writes federal banking law and creates a new Bureau of Consumer Financial Protection. A key question, as yet unanswered, is whether the sale and/or purchase of structured settlement annuities constitutes a "financial product or service" under Dodd-Frank requiring regulatory supervision by the Bureau.

Regulations

The United States Department of Treasury held a public hearing on February 23, 2010 focused on proposed new regulations for Internal Revenue Code section 104(a)(2). The proposed regulations, if enacted, would:

Eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion, and

Incorporate 1996 legislation requiring that personal injuries and sickness damages be “physical” in order to qualify for the section 104(a)(2) tax exclusion.

A subsequent S2KM interview featured John McCullough and Richard Risk, two of the structured settlement industry members who spoke at the hearing.

The Centers for Medicare and Medicaid Services (CMS) continued to issue administrative guidance during 2010 for enforcement of the Medicare Secondary Payer (MSP) Act of 1980 and the Medicare, Medicaid and SCHIP Extension Act of 2007 (MMSEA) reporting requirements for insurers. Featured discussions during the NAMSAP 2010 Annual meeting highlighted:

The increasing importance and complexity of the MSP statute for all personal injury stakeholders;

The need for these personal injury stakeholders (and their professional associations) to cooperate politically and educationally;

The evolving business models, claim management strategies and professional skill sets which are now emerging to address these challenges.

Case law

The Spencer v. Hartford class action lawsuit which settled in 2010 represents one of the most important legal developments in the history of the structured settlement industry.

Hartford's gross settlement payment of $72.5 million represents 4.5% of total premium dollars Hartford used to purchase structured settlement annuities for class members from January 1, 1997 to June 7, 2010.

Among the plaintiffs allegations:

Hartford and its attorneys, brokers and agents violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and committed common law fraud in structuring its settlements.

Hartford's structured settlements were priced so Hartford retained 15% of the value of the structured settlements.

Hartford and its attorneys, brokers and agents misrepresented structured settlements including explicit or implicit reference to:

The "cost" of the annuity or structured settlement or portion of the settlement being structured; and/or

The "value" of the annuity or structured settlement or portion of the settlement being structured.

Hartford, which stopped writing new structured settlement business in 2009, denied the allegations.

Technology

Despite the accelerating technology advances revolutionizing society generally, the structured settlement and special needs settlement planning industries have been slow to study and incorporate these advances into their educational programs and business models.

The best industry-sponsored technology education programs during 2010 were offered by Mark Miller during a NAELA webinar and Harry Margolis at the ASNP 2010 Annual Meeting. Both presentations provided introductory overviews of web 2.0 and including recommendations for integrating specific social networking tools into special needs legal practices.

NSSTA initiated a NSSTA blog during 2010 and offered an educational program about Internet marketing during its 2010 Fall Education program.

Public policy

Both SSP and NASP featured specific discussions and presentations about structured settlement public policy during their 2010 Annual Meetings. The discussions included industry commentators representing diverse viewpoints and priorities.

In a 2010 Boston College Law Review article, professors Gregg Polsky and Brant Hellwig challenged the application of any structured settlement tax benefit for deferring attorney fees or payments to non-physically injured tort plaintiffs under general common law tax principles.

Business standards and practices

The Spencer v. Hartford case raises many issues about structured settlement business standards and practices which require greater education and analysis if the primary market expects to improve and grow. For example;

Is the primary structured settlement market capable of self-regulation?

As an additional requirement, or as an alternative, why haven't plaintiff attorneys and plaintiff consultants insisted upon a claimant's written informed consent before entering into a structured settlement?

"Cash now" advertising represents one of the most highly criticized secondary market business practices. Although this practice continues to exist, NASP took an important educational step during its 2010 Annual Meeting by highlighting this issue and inviting secondary market critics to participate in the discussion.

Business models

While other segments of, and products within, the special needs settlement planning market have expanded and improved in recent years, the structured settlement primary market in general has stagnated and retrenched.

During 2010, however, representatives of the primary structured settlement market increasingly recognized their interdependency, and interacted, with other settlement planning professionals and professional associations such as special needs attorneys, life care planners, Medicare set-aside professionals and secondary structured settlement market participants.

Future industry improvement and growth will require even greater appreciation and identification of shared interests as well as expanded implementation of shared political strategies, educational programs and business models.

November 09, 2010

These polar-opposite imperatives for the structured settlement industry represent S2KM's two strategic lenses for reporting and analyzing simultaneous educational programs this week in Las Vegas sponsored by the National Structured Settlement Trade Association (NSSTA) and the National Association of Settlement Purchasers (NASP).

S2KM's Managing Director, Patrick Hindert, will attend portions of the NSSTA conference (as a NSSTA member and former NSSTA President) and participate in NASP's Friday morning "Industry Analysis" program (as a moderator and speaker). S2KM's continued reporting and commentary about the NSSTA and NASP conferences will appear on this S2KM blog ("Beyond Structured Settlements") as well as S2KM's structured settlement wiki.

NSSTA's strategic mandate is to "protect and preserve".

Question: what exactly does NSSTA want to "protect and preserve"?

The simple answer: Internal Revenue Code sections 104(a) and 130.

More strategically, what NSSTA wants to "protect and preserve" (to the extent possible) are business models and business practices ("good old days") that existed prior to:

One result of NSSTA's "protect and preserve" mandate has been a "dumbing down" of NSSTA's educational programs - at least from a strategic perspective. Some of NSSTA's technical discussions are excellent. For example, NSSTA's legal committee has re-emerged as a leading structured settlement educational resource. And NSSTA's CSSC certification program continues to receive positive reviews despite low attendance and the lack of a continuing education (CLE) requirement.

NSSTA's primary educational problem is the application of its narrow and political strategic framework ("protect and preserve" as opposed to "improve and grow") for its educational programs. For example, NSSTA never invites knowledge leaders from NASP or SSP (or anyone critical of NSSTA political objectives) to participate in NSSTA's educational programs. For another related example, NSSTA educational programs never provide strategic discussions ("Industry Analysis") with alternative perspectives.

Bottom line: NSSTA's educational programs have fallen behind NASP and SSP who now represent the benchmarks for structured settlement educational excellence. For further S2KM reporting about NSSTA's educational demise, see: S2KM's analysis of NSSTA's 2009 educational program. Unfortunately, NSSTA's announced 2010 educational program looks like "the same old, same old" - at least from S2KM's strategic perspective.

By comparison with NSSTA, NASP will devote three hours of its 2010 educational program this week in Las Vegas specifically to "Structured Settlement Industry Analysis". This portion of the NASP program is subtitled: "How to Improve and Grow the Structured Settlement Industry".

Format: S2KM identified and submitted to NASP a preliminary list of strategic
structured settlement questions. NASP encouraged the panelists to identify and address
S2KM questions that most interested them. NASP allocated time for audience questions and participation.

Primary S2KM questions addressed by the NASP panel:

Which 2009 events and developments (legal; financial;
political) will most significantly impact the future of structured
settlements?

What are the best and worst structured settlement business practices?

Are factoring transactions good or bad for structured settlements?

Does public policy support state court ordered structured settlement factoring transactions?

How
has the financial crisis changed the structured settlement market?
Note: although NASP's strategic panel acknowledged the importance of
this issue, the panel also recognized the related comprehensive discussion by the NASP "Capital Markets" panel.

Spencer v. Hartford
- how the recent United States Second Circuit Court decision (denying
Hartford's appeal) impacts the Hartford class action lawsuit and which
other structured settlement programs are now at risk for
potential RICO class action lawsuits?

Revised California protection statute
- viewed by the panel as a legislative victory for the structured settlement industry and featuring
specific "best interest" criteria for state judges to consider in California settlement transfer cases.

Fresno County cases
- viewed by the panel as a judicial victory for the structured settlement industry
with an appellate court ruling that public policy supports state court
approved structured settlement factoring transactions.

Rapid Settlement cases
- viewed by the panel as a victory for the structured settlement industry with
continuing judicial denial of arbitration alternatives to state court
approved transfers pursuant to IRC 5891 and state structured settlement
protection statutes.

Scott Rothstein ponzi scheme - identified as a
legal and public relations reminder that all participants in settlements
featuring periodic payments with potential subsequent payment transfers
would benefit from applicable legislation (protection statutes) and required
state court approvals.

Best and worst business standards and practices - as identified and discussed by the NASP panel:

Is the secondary market good or bad for structured settlements? This question was discussed in detail during the NASP 2008 Annual Meeting
with Jack Meligan and Michael Upchurch providing a primary market
critique of the secondary market. NASP's 2009 Annual Meeting featured
two published critics of secondary market business behavior: Judge
Edward Burke of Arizona and attorney Daniel Hindert of Utah. In
addition, Michael Upchurch participated on the NASP strategic analysis
panel. If the NASP program reached any conclusion for this issue, it
was: the secondary structured settlement market is a reality. Whether
the secondary market is good or bad for structured settlements depends
upon business behavior and business results in both the primary and
secondary markets.

Does public policy support state court ordered structured settlement factoring transactions?
Jeremy Babener discussed the public policy arguments for and against
factoring transactions. Babener concluded that more information is
needed to make a comprehensive public policy declaration. The recent
California appellate court decision in Henderson v. Scioteco
holds that public policy supports state court approved factoring
transactions. Babener, acknowledged the importance of the decision, but
disagreed with the California court's characterization of IRC 5891 as
an "express sanction" of factoring. Richard Risk agreed with
Babener that IRC 5891 does not contain a clear statement of public
policy about factoring. Risk, however, pointed to examples of IRC 5891
legislative history that contradict any claim that public policy is
against structured settlement factoring. As one example, Risk cited the
Joint Committee on Taxation’s report released on March 18, 1999, “Tax Treatment of Structured Settlement Arrangements,” which Risk interprets as public policy support that structured settlements can co-exist with factoring.

S2KM applauds NASP for:

Focusing much of its 2009 educational program on strategic structured settlement industry issues; and also for